Monday, August 31, 2009

Second Thoughts

Two weeks ago ( on August 10), I ended the long slog through a 10 part argument (The Core Narrative of Climate Change) by arguing that in the end, my worries about divergent interests between the Developing World and the Developed World might be misplaced. I argued that high growth trajectories failed to take in to account the effects of the temperature gain on GNP. GNP is an external input in these calculations. I then relied on a paper by In a very interesting paper, Melissa Dell , Benjamin F. Jones, and Benjamin A. Olken (“Climate Shocks and Economic Growth: Evidence from the Last Half Century”) that looks at the historical record to argue that a 1 degree centigrade rise in temperature reduces economic growth by an average of 1.1% but only in poor countries. I argued that using Asian figures in the IPPC scenarios, the difference between A1B and A2 by 2100 is about $100 trillion. (A1B is $207.3 trillion by 2100 while B1 is $105.9 trillion.) Both start the century at $2.7 trillion. For A1B the implied growth rate is 4.4%. So it be 3.3% less the “cost” of global warming of 1 degree more than the B1 scenario. So the projected GNP of Asia would be $69 trillion which is $35 trillion less than the B1 figure. So it seemed that the cost of climate change to output seems to outweigh the gain from more aggressive scenarios. Not so fast!! All of this only applies to poor countries. GDP growth rates for rich countries are not really affected by such changes according to the M.I.T. research – they are less agricultural and more flexible economically. But here is the rub: on the projected growth trajectory for Asia both China and India will move from “poor” to “rich” long before 2050. If and when that happens, at least on the basis of this research, they won’t have offsetting losses to GDP from climate change that would undermine their gains from an aggressive growth trajectory. So, at least on the basis of self-interest, the conclusion I drew two weeks ago is wrong for them. And they are the ones whose output matters most in the Developing World!

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